Document 52015DC0080

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy

52015DC0080

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE, THE COMMITTEE OF THE REGIONS AND THE EUROPEAN INVESTMENT BANK A Framework Strategy for a Resilient Energy Union with a Forward-Looking Climate Change Policy /* COM/2015/080 final */

1. WHY WE NEED AN ENERGY UNION

The goal of a resilient Energy Union with
an ambitious climate policy at its core is to give EU consumers - households
and businesses - secure, sustainable, competitive and affordable energy.
Achieving this goal will require a fundamental transformation of Europe's
energy system.

Our vision is of an Energy Union where
Member States see that they depend on each other to deliver secure energy to
their citizens, based on true solidarity and trust, and of an Energy Union that
speaks with one voice in global affairs;

Our vision is of an integrated
continent-wide energy system where energy flows freely across borders, based on
competition and the best possible use of resources, and with effective
regulation of energy markets at EU level where necessary;

Our vision is of the Energy Union as a
sustainable, low-carbon and climate-friendly economy that is designed to last;

Our vision is of strong, innovative and
competitive European companies that develop the industrial products and technology
needed to deliver energy efficiency and low carbon technologies inside and
outside Europe,

Our vision is of a European labour force
with the skills to build and manage the energy system of tomorrow;

Our vision is of investor confidence
through price signals that reflect long term needs and policy objectives;

Most importantly, our vision is of an
Energy Union with citizens at its core, where citizens take ownership of the
energy transition, benefit from new technologies to reduce their bills, participate
actively in the market, and where vulnerable consumers are protected.

To reach our goal, we have to move away
from an economy driven by fossil fuels, an economy where energy is based on a
centralised, supply-side approach and which relies on old technologies and
outdated business models. We have to empower consumers through providing them
with information, choice and through creating flexibility to manage demand as
well as supply. We have to move away from a fragmented system characterised by
uncoordinated national policies, market barriers and energy-isolated areas.

European energy system in figures Latest data shows that the EU imported 53% of its energy at a cost of around EUR 400 billion, which makes it the largest energy importer in the world. Six Member States depend on a single external supplier for their entire gas imports and therefore remain too vulnerable to supply shocks. It has also been estimated that every additional 1% increase in energy savings cuts gas imports by 2.6%.[1] 75% of our housing stock is energy inefficient. 94% percent of transport relies on oil products, of which 90% is imported. Collectively, the EU spent over EUR 120 billion per year – directly or indirectly – on energy subsidies, often not justified.[2] Over EUR 1 trillion need to be invested into the energy sector in EU by 2020 alone.[3] Wholesale electricity prices for European countries are at low levels, though still 30% higher than in the US. At the same time, post-tax electricity prices for households increased on average by 4.4% from 2012 to 2013. Wholesale gas prices are still more than twice as high as in the US[4]. The price difference with other economies has an impact on the competitiveness of our industry, in particular our energy-intensive industries. European renewable energy businesses have a combined annual turnover of €129bn and employ over a million people[5]. EU companies have a share of 40% of all patents for renewable technologies.[6] The challenge is to retain Europe's leading role in global investment in renewable energy.[7]

Today,
the European Union has energy rules set at the European level, but in practice
it has 28 national regulatory frameworks. This cannot continue. An integrated
energy market is needed to create more competition, lead to greater market efficiency
through better use of energy generation facilities across the EU and to produce
affordable prices for consumers.

The
retail market is not functioning properly. Many
household consumers have too little
choice of energy suppliers and too little control over their energy costs. An unacceptably
high percentage of European households cannot afford to pay their energy bills.

Energy
infrastructure is ageing and not adjusted to the increased production from
renewables. There is a need to attract investments, but the current market
design and national policies do not set the right incentives and provide
insufficient predictability for potential investors.

Energy islands continue to exist as many markets are not properly connected to their neighbours. This adds to the costs faced by consumers and creates vulnerability
in terms of energy security.

We are still
leaders in innovation and renewable energy, but other parts of the world are
fast catching up and we have already lost ground when it comes to some clean,
low carbon technologies.

Building up
investment in high-tech, globally competing companies through stable policies
will bring jobs and growth to Europe. New business
sectors, new business models and new job profiles will emerge. Such
transformational change profoundly affects the roles of all actors in the
energy system, including the consumers.

Europe needs to make the right choices now. If it continues
on the present path, the unavoidable challenge of shifting to a low-carbon
economy will be made harder by the economic, social and environmental costs of
having fragmented national energy markets. The current low oil and gas prices,
while they last, should be seized as an historic opportunity – when combined
with the falling cost of cleaner forms of energy, a strong EU climate policy
and the emergence of new technologies – to reset the EU's energy policy in the
right direction: that of an Energy Union.

2. THE WAY FORWARD

The Energy Union strategy has five
mutually-reinforcing and closely interrelated dimensions designed to
bring greater energy security, sustainability and competitiveness:

- Energy security, solidarity and trust;

- A fully integrated European energy
market;

- Energy efficiency contributing to
moderation of demand;

- Decarbonising the economy, and

- Research, Innovation and Competitiveness

2.1. Energy security, solidarity and trust

In May 2014 the Commission set out in its
Energy Security Strategy[8]
how the EU remains vulnerable to external energy shocks and called on policy
makers at national and EU level to make clear to citizens the choices involved
in reducing our dependency on particular fuels, energy suppliers and routes.
The Energy Union builds on this strategy.

The key drivers of energy security
are the completion of the internal energy market and more efficient energy
consumption. It depends on more transparency as well as on more solidarity and
trust between the Member States. The EU's energy security is closely linked
with its neighbours.

Joint approaches in the field of
energy can make all parts of the European Union stronger, for instance in case
of supply shortages or disruptions. The spirit of solidarity in energy matters
is explicitly mentioned in the Treaty and is at the heart of the Energy Union.

Diversification of supply (energy
sources, suppliers and routes)

The political
challenges over the last months have shown that diversification of energy sources, suppliers and routes is crucial for ensuring secure and resilient
energy supplies to European citizens and companies, who expect access to
affordable and competitively priced energy at any given moment. To ensure the diversification in gas supplies, work on the Southern
Gas Corridor must be intensified to enable Central Asian countries to export
their gas to Europe. In Northern Europe, the establishment of liquid gas hubs
with multiple suppliers is greatly enhancing supply security. This example
should be followed in Central and Eastern Europe, and in the Mediterranean
area, where a Mediterranean gas hub is in the making.

Constructing the infrastructure to deliver
new sources of gas to the EU involves many partners, and is both complex and
expensive. Resolving these issues requires resolute action at EU level. The Commission will reinforce its support for
this process through the use of all available Community
funding instruments in particular the future European Fund for Strategic
Investments (EFSI), and fully involving European financial institutions.
However, the necessary infrastructure must also be in place inside the EU,
including the possibility of reverse flows, to bring the gas to where it is
needed.

We will explore the full potential of
liquefied natural gas (LNG), including as a back-up in crisis situations when
insufficient gas is coming into Europe through the existing pipeline system.
Increases in LNG trade will help to bring world natural gas prices closer
together. LNG prices have over recent years been higher compared to pipeline
gas due in particular to high liquefaction, regasification and transportation
costs and demand in Asia. In order to address these issues, the Commission will
prepare a comprehensive LNG strategy, which will also look into the necessary
transport infrastructure linking LNG access points with the internal market.
The potential of gas storage in Europe and the regulatory framework needed to
ensure sufficient gas in storage for winter will also be addressed in this
context. The Commission will also work to remove obstacles to LNG imports from
the US and other LNG producers.

Given the EU's import
dependence and global climate change challenges, we need to take additional
measures to reduce its oil consumption. Oil prices are currently low because of
excess production, combined with lower consumption and increased energy
efficiency.[9]

The EU is highly
dependent on the import of nuclear fuel and related services to Member States
where nuclear energy is part of the energy mix. Diversification of supply is
important to ensure security of supply. The Commission will update and enhance the
requirements on the information to be provided, in accordance with Article 41
of the Euratom Treaty, on nuclear installation projects.

Domestically produced
energy also contributes to decreasing Europe's energy import dependence. This
includes notably renewables, needed for decarbonisation, as well as
conventional and - for those Member States that choose it - non-conventional
fossil resources. Producing oil and gas from unconventional sources in Europe
such as shale gas is an option, provided that issues of public acceptance and
environmental impact are adequately addressed.

Working together on security of supply

Member States,
transmission system operators, the energy industry and all other stakeholders
have to work closely together to ensure a high-level of energy security for
European citizens and companies.

Regarding oil,
important steps have been taken already with the adoption of the 2009 Oil
Stocks Directive[10],
which foresees obligations for Member States to build up and maintain minimum
stocks of crude oil and petroleum products.

Member States should be
assured that in situations of tight supply, they can rely on their neighbours.
The Commission's 2014 Report on short-term resilience in the gas sector[11] stressed the need for
stronger cooperation in responding to a potential supply disruption. To
introduce common crisis management, the Commission will propose preventive and
emergency plans at regional and EU level, including the Energy Community
contracting parties. Solidarity among Member States, in particular in times of
supply crisis, has to be strengthened. These issues and the experience gained
in the implementation of the Regulation will be taken into account when
proposing a revision of the Security of Gas Supply Regulation.

The Commission will
assess options for voluntary demand aggregation mechanisms for collective
purchasing of gas during a crisis and where Member States are dependent on a
single supplier. This would need to be fully compliant with WTO rules and EU
competition rules.

Many Member States
currently have inadequate security of electricity supply frameworks in place
and they use outdated and inconsistent approaches to assessing security of
electricity supply. Working together with Member States, the Commission will
establish a range of acceptable risk levels for supply interruptions, and an
objective, EU-wide, fact-based security of supply assessment addressing the
situation in Member States. This will take into account cross-border flows,
variable renewable production, demand response and storage possibilities.
Capacity mechanisms should only be developed to address security of supply if a
regional system adequacy assessment points to such a need, taking into account
the potential for energy efficiency and demand-side response.[12]

Stronger European role in global energy
markets

The Energy Union is not
an inward-looking project. A stronger and more united EU can engage more
constructively with its partners, to their mutual benefit.

Energy policy is often
used as a foreign policy tool, in particular in major energy producing and
transit countries. This reality has to be taken into account when discussing
Europe's external energy policy.

Therefore, the European Union has to improve
its ability to project its weight on global energy markets. Together
with its major partners, the European Union will work towards an improved global governance system for energy, leading to more
competitive and transparent global energy markets.

EU trade policy contributes to greater energy security and
diversification through the inclusion of energy-related provisions in trade
agreements with its partners. Where the EU negotiates agreements with countries
that are important from a security of supply perspective, the Commission will
seek as a priority to negotiate energy specific provisions contributing to the
energy security, notably access to resources, and sustainable energy goals of
the Energy Union. In general, the Commission will
pursue an active trade
and investment agenda in the energy field, including access to foreign markets
for European energy technology and services.[13]

As part of a
revitalised European energy and climate diplomacy, the EU will use all its
foreign policy instruments to establish strategic energy partnerships with
increasingly important producing and transit countries or regions such as
Algeria and Turkey; Azerbaijan and Turkmenistan; the Middle East; Africa and
other potential suppliers.

The EU will further
develop its partnership with Norway, the EU's second
largest supplier of crude oil and natural gas. The EU will continue to
integrate Norway fully into its internal energy policies. The EU will also
develop its partnerships with countries such as the United States and
Canada.

When
the conditions are right,
the EU will consider reframing the energy relationship with Russia based on a
level playing field in terms of market opening, fair competition, environmental
protection and safety, for the mutual benefit of both sides.

Particular
attention will be paid to upgrading the Strategic Partnership on energy with Ukraine. This will
address issues related to Ukraine's importance as a transit country as well as
those related to Ukraine's energy market reforms, such as the upgrade of its
gas network, the setting up of an appropriate regulatory framework for the
electricity market and increasing energy efficiency in Ukraine as a means of
reducing its dependence on imported energy.

In our immediate neighbourhood, the Commission will propose to
strengthen the Energy Community, ensuring effective
implementation of the EU's energy, environment and competition acquis, energy
market reforms and incentivising investments in the energy sector. The goal is
closer integration of the EU and Energy Community energy markets. The energy
relationships with the European Neighbourhood Partnership (ENP) countries will
be considered in the ongoing ENP review.

More transparency on
gas supply

An important element in
ensuring energy (and in particular gas) security is full compliance of
agreements related to the buying of energy from third countries with EU law.
Such compliance checks for Intergovernmental Agreements (IGAs) and related
commercial agreements based on the relevant Decision[14] are currently carried
out after a Member State and a third country have concluded an agreement. In
practice, we have seen that renegotiating such agreements is very difficult.
The positions of the signatories have already been fixed, which creates
political pressure not to change any aspect of the agreement. In future, the
Commission should be informed about the negotiation of intergovernmental
agreements from an early stage, so that a better ex ante assessment of IGA's
compatibility with internal market rules and security of supply criteria is
ensured. Commission participation in such negotiations with third countries and
a move towards standard contract clauses could also more effectively avoid
undue pressure and ensure respect of European rules. Therefore, the Commission
will review the Intergovernmental Agreements Decision and will propose options
to ensure that the EU speaks with one voice in negotiations with third
countries.

In the context of the
review of the Security of Gas Supply Regulation, the Commission will also
propose to ensure appropriate transparency of
commercial gas supply contracts that may have an impact on EU energy security,
while safeguarding the confidentiality of sensitive
information.

2.2. A fully-integrated internal energy
market

Despite progress made in recent years,
Europe’s energy system is still underperforming. The current market design does
not lead to sufficient investments, market concentration and weak competition
remain an issue and the European energy landscape is still too fragmented. We
have to give a new political boost to completing the internal energy market.

At this moment,
the European electricity and gas transmission systems, notably cross-border
connections, are not sufficient to make the internal energy market work properly
and to link the remaining energy islands to the main electricity and gas
network.

Work on
infrastructure projects has accelerated in recent years, even more so in light
of recent events at the European Union’s Eastern border. In 2013, the European
Union identified 248 energy infrastructure Projects of Common Interest (PCIs). The list will be reviewed and up-dated later this year and then
again every other year.[15] In 2014, the European Energy Security Strategy identified 33
infrastructure projects which are essential to improve security of supply and
better connect energy markets.

A specific minimum
interconnection target has been set for electricity at 10% of installed
electricity production capacity of the Member States, which should be achieved
by 2020. The necessary measures to achieve this 10% target are set out in the
Commission Communication presented with this Energy Union Strategic Framework.
In 2016, the Commission will report on the necessary measures to reach a 15%
target by 2030.

The transition
towards a more secure and sustainable energy system will require major
investments in generation, networks and energy efficiency, estimated at some € 200
billion annually in the next decade.[16]
While the private sector will bear the costs of much of these investments,
access to financing will be key. Today, the European Investment Bank, the
Connecting Europe Facility and financing under the European Structural and
Investment Funds already provide the means. Moreover, the proposed European
Fund for Strategic Investments will provide additional support, hence, further
facilitating access to finance for projects of European significance such as in
energy networks, renewable energy and energy efficiency. The Commission will
explore proposals for energy investment regimes that pool resources to finance
economically viable investments, avoiding market distortion and fragmentation.

Investors can draw
on the Investment Portal being set up as part of the European Fund for
Strategic Investments that is designed to boost the transparency of the EU
investment project pipeline to make information accessible to potential
investors. The Commission will also bring together information on
infrastructure projects funded by the Connecting Europe Facility and EU
Cohesion Policy Funds, to bring more coherence in the wide array of existing
funding schemes and maximise their impact.

The Commission
will regularly take stock of the implementation of major infrastructure
projects which contribute to the Energy Union, in particular in the framework
of the PCI follow-up. As part of this stock-taking exercise, it will make an
annual report on the progress to reach the 10% electricity interconnection
target with a specific focus on the implementation of the regional action
plans. Finally, the Commission will also convene a dedicated Energy
Infrastructure Forum where progress should be discussed with the Member States,
relevant regional cooperation groups as well as with EU institutions. It will
meet for the first time in late 2015.

Implementing and upgrading the
internal energy market’s software

Full
implementation and strict enforcement of existing energy and related
legislation is the first priority to establish the Energy Union. There is no point in developing new policies and approaches on weak
foundations.

The Commission will use all available
policy instruments in this regard and will insist that Member States fully
implement and enforce the 3rd Internal Energy Market Package, in
particular as regards unbundling and the independence of regulators. Certain
ex-ante conditions must be met so that the European Structural and Investment
Funds can be used for co-financing energy investments. This will help to ensure
compliance with EU energy legislation.

Strict enforcement of the Treaty's
competition rules will help to prevent companies from distorting the internal
energy market. Antitrust enforcement will ensure that energy can flow freely by
addressing territorial restrictions in supply contracts as well as
upstream/downstream and network foreclosure issues (including interconnectors).
The Commission will also
assess – through competition law enforcement – the evolution and formation of
energy prices.

A well-functioning internal energy market
needs an effective regulatory framework. The 3rd Internal Energy
Market Package set up bodies to ensure cooperation among transmission system
operators and regulators. In the context of the market design discussion, the
functioning of these bodies will be strengthened. Currently decisions in these
bodies still reflect national views.

Transmission system operation will need to
become much more integrated to meet the challenges of the transformed energy
system. The European Networks of Transmission System Operators for Electricity
and Gas (ENTSO-E/G), which were also set-up by the 3rd Internal
Energy Market Package, need to be upgraded to fulfil such a role. Regional
operational centres will have to be created, so that they can effectively plan
and manage cross-border electricity and gas flows.

The Agency for Cooperation of Energy
Regulators (ACER) was established by the 3rd Internal Energy Market
Package to assist national regulators, in particular on cross-border issues.
However, ACER currently acts primarily through recommendations and opinions. It
has very limited decision-making rights, e.g. it can only take decisions at the
request of the national regulators or if they fail to take a decision within a
certain timeframe. EU-wide regulation of the single market should be
strengthened, through a significant reinforcement of the powers and
independence of ACER to carry out regulatory functions at the European level in
order to enable it to effectively oversee the development of the internal
energy market and the related market rules as well as to deal with all
cross-border issues necessary to create a seamless internal market.[17]

The 3rd Internal Energy Market
Package also provided for the adoption of network codes in order to help
harmonise the flow of electricity and gas across different transmission
systems. This work has to be completed to ensure a better functioning of
cross-border energy markets.

Market integration of renewable electricity
generation requires flexible markets, both on the supply and demand side,
within and beyond a Member State's borders. Electricity grids must therefore
evolve significantly. There is a need to expand the
possibilities for distributed generation and demand-side management, including
intraday markets, to develop new high-voltage long distance connections
(supergrids) and new storage technologies.

The Commission will prepare an ambitious legislative proposal to
redesign the electricity market and linking wholesale and retail. This will
increase security of supply and ensure that the electricity market will be
better adapted to the energy transition which will bring in a multitude of new
producers, in particular of renewable energy sources, as well as enable full participation
of consumers in the market notably through demand response. Closer integration,
including on a regional level, more cross-border trade and the development of
both short and long term markets with effective price formation will deliver
the right investment signals as well as the necessary flexibility to allow
market integration of new generation sources.

A fully functioning internal energy market,
providing efficient investment signals, is the best means to reduce the need
for capacity mechanisms. The Commission has already set out guidance[18] and rules[19] to limit the
detrimental effects of badly-designed, fragmented and uncoordinated public
interventions. However, effective application of this guidance can only be a
first step to ensure that divergent national market arrangements, such as
capacity mechanisms and uncoordinated renewables support schemes become more
compatible with the internal market.[20]
Even though in some cases required and justified to address market failures,
some forms of public intervention have had a serious negative impact on the
effective functioning of the internal energy market. The Commission will work
together with Member States to ensure that capacity mechanisms and support for
renewable electricity are fully in line with existing rules and do not distort
the internal energy market. Environmentally harmful subsidies need to be phased
out altogether.[21]
A reformed Emission Trading System will also play an important role in setting
the right investment signals.

Finally, the Commission will ensure greater
transparency in the composition of energy costs and prices by developing
regular and detailed monitoring and reporting, including on impacts of energy
costs and prices on competitiveness. Particular attention will be paid to public
interventions such as regulated tariffs, energy taxation policies and the level
of public support, as well as their impact on pricing mechanisms, including
electricity tariff deficits.

Enhanced regional cooperation within a
common EU framework

In an Energy Union, Member States must
coordinate and cooperate with their neighbours when developing their energy
policies.

Technical implementation of the different
elements of our Energy Union strategy will be very complex. Some elements, such
as new market arrangements for short term markets in gas and electricity or
integrating the operations of transmission system operators should be developed
and implemented at regional level as a step towards
full EU-wide market integration. Existing arrangements such
as the Pentalateral Energy Forum or the Baltic Energy Market Interconnection
Plan (BEMIP) are initiatives on which to build further. Successes in these
regions should act as a catalyst for other regions. The Commission will ensure that all regional initiatives evolve in a
coherent way and lead towards a fully integrated Single Energy Market.

Given its particular vulnerability, there
is a need to improve cooperation, solidarity and trust in the Central and
South-Eastern part of Europe. Dedicated cooperation arrangements would help to
accelerate the better integration of these markets into the wider European
energy market which would improve the liquidity and resilience of the energy
system and would allow full use of the region's energy efficiency and renewable
energy potential. The Commission will take concrete initiatives in this regard
as an urgent priority.

For the Northern and Baltic Seas, the
Commission will work with Member States and industry on delivering
cost-reduction to these offshore energy systems.

A new deal for consumers

In an Energy Union, consumers in one Member
State should be able to make informed choices and buy their energy freely and
simply from a company in another Member State. This requires the further
adaptation of the current national regulatory frameworks since the vast
majority of European households remain passive consumers. In some Member States
consumers have a limited choice of suppliers and switching between suppliers is
relatively cumbersome.

In order to empower consumers, Member
States and their authorities need to fully implement and enforce existing
European rules, including consumer protection rules. Necessary support measures
should be undertaken also by regional and local authorities, so that consumers
have understandable, readily-accessible information, user-friendly tools, and
financial incentives for saving energy.

Smart technologies will help consumers and
energy service companies working for them to reap the opportunities available
on the energy market by taking control of their energy consumption (and
possible self-production). This will deliver more flexibility in the market and
potentially reduce consumer bills.

The Commission will continue to push for
standardisation and to support the national roll-out of smart meters[22] and to promote the
further development of smart appliances and smart grids, so that flexible
energy use is rewarded. It will develop synergies
between the Energy Union and the Digital Single Market agenda and take measures
to ensure privacy protection and cyber-security.

However, this will only work if market
prices send the right signals. In a number of Member States, regulated tariffs
still limit the development of effective competition, which discourages investments and the emergence of new market players.
Regulated end-user prices are often used to protect households or even
non-household customers from increases in energy costs. The impact of such
measures falls on non-regulated customers, on electricity companies and/or
public finances, where electricity tariff deficits are incurred. However, in
the long run, these measures harm the interests of the consumers they are meant
to help. The Commission will seek the phasing-out of below cost regulated
prices through the competition and economic governance frameworks. It will also
encourage Member States to establish a road map for the phasing-out of all
regulated prices.

Protecting vulnerable consumers

Energy poverty negatively affects living
conditions and health. It has many causes, mostly resulting from a combination
of low income and general poverty conditions, inefficient homes and a housing
tenure system that fails to encourage energy efficiency. Energy poverty can
only be tackled by a combination of measures, mainly in the social field and within
the competence of authorities on the national, regional or local levels. When
phasing out regulated prices, Member States need to propose a mechanism to
protect vulnerable consumers, which could preferably be provided through the
general welfare system. If provided through the energy market, it could be
implemented through schemes such as a solidarity tariff or as a discount on
energy bills. The cost of such schemes needs to be covered by non-eligible
consumers collectively. Hence, it is important that such a system is well
targeted to keep overall costs low and to limit the distortions deriving from
regulated prices (e.g. not increase further tariff deficits in Member States).

2.3. Energy efficiency as a contribution
to the moderation of energy demand

The European Council set in October 2014 an
indicative target at the EU level of at least 27% for improving energy
efficiency in 2030. This will be reviewed by 2020, having in mind an EU level
of 30%. It is in this context necessary to fundamentally rethink energy
efficiency and treat it as an energy source in its own right, representing the
value of energy saved. As part of the market design review, the Commission will
ensure that energy efficiency and demand side response can compete on equal
terms with generation capacity.

Most of the work has to be done at
national, regional and local level, but the Commission can play a strong role
creating the appropriate framework for progress. The Commission will,
therefore, encourage Member States to give energy efficiency primary
consideration in their policies.

The EU has already put in place the world's
leading set of measures to become more efficient in our energy consumption.
Through energy labelling and ecodesign legislation, consumers can make informed
energy consumption choices. While all economic sectors must take steps to
increase the efficiency of their energy consumption, the Commission will pay
special attention to those sectors with a huge energy efficiency potential, in
particular the transport and buildings sector. The Commission will further
establish synergies between energy efficiency policies, resource efficiency
policies and the circular economy. This will include exploiting the potential
of "waste to energy".

Increasing energy
efficiency in the buildings sector

Heating and cooling is
the largest single source of energy demand in Europe and the majority of
Europe’s gas imports are used for these purposes. Huge efficiency gains remain
to be captured with regard to district heating and cooling, which will be
addressed in a Commission strategy.

Actions by Member
States, particularly at the local and regional levels, are needed to exploit
the energy efficiency potential of buildings. Attracting investments at the
scale needed remains a challenge, especially at the local level, mainly due to
lack of awareness and expertise in small-scale financing. The Commission will
support ways to simplify access to existing financing and offer ‘off-the-shelf’
financing templates for financial instruments to the European Structural and
Investment Funds managing authorities and interested stakeholders, promote new
financing schemes based on risk and revenue sharing, develop new financing
techniques and support in terms of technical assistance. Financial support needs to be combined with technical support to help
aggregate small-scale projects into larger programmes which can drive down
transaction costs and attract the private sector at scale.

The work of the Smart
Cities and Communities-initiatives as well as to the Covenant of Mayors, which
are primarily carried forward by mayors, civil society organisations,
investors, financial institutions and service providers, is important for
achieving progress on energy efficiency in and outside the EU. This work has
the Commission's firm support. The Commission will also develop a "global
excellence for energy efficiency policy-making” initiative as a contribution to
the G20 Energy Efficiency Action Plan. It will strongly promote the adoption of
ambitious energy efficiency goals and targets in fora such as the UN
"Sustainable Energy for All" initiative and the International Energy
Agency. As a global leader in energy efficiency technology, this should be a
driver for exports, and growth and jobs in the EU.

EU funds and EIB financing
can make a huge difference. The European Fund for Strategic Investments
provides an opportunity to leverage major investments in renovating buildings.
Investments in this area can provide great returns in terms of growth and jobs.

Towards an energy-efficient,
decarbonised transport sector

Transport represents more than 30% of final
energy consumption in Europe. Realising its energy efficiency potential
requires a continued focus on tightening CO2 emission standards for
passenger cars and vans post-2020, and on measures to increase fuel efficiency
and reduce CO2 emissions for heavy duty vehicles and buses. Better
traffic management should also be promoted as a modern, forward-looking tool to
cut CO2 emissions.

This should be accompanied by measures to better
exploit the potential of the single market and to internalise external costs.
The Commission will promote the use of road charging schemes based on the
polluter-pays and user-pays principles and increase efforts to create a single
European transport area, based on a more optimal use of the fleet. Considerable
fuel savings could also be realized by removing barriers to less green-house
gas intensive modes of transport, such as rail, maritime transport and inland
waterways, and by making these modes more attractive and cost efficient. The
Commission will further promote the ‘Shift2Rail’[23] initiative.

The Commission will also take further
actions to decarbonise the transport sector, which is still essentially running
on oil products. This will require a gradual transformation of the entire
transport system as well as an increased development and deployment of
alternative fuels. The Commission will take further
action to promote the swift deployment of the necessary
infrastructure, i.e. refuelling and recharging stations. [24] Market up-take of such
vehicles depends on infrastructure, vehicles and fuels being rolled out
together.

Electrification of transport is important
to break oil dependency and to decarbonise transport, especially for road
(short and medium distance) and rail transport. Europe needs to speed up
electrification of its car fleet and other means of transport and become a
leader in electro-mobility and energy storage technologies. This requires a
full integration of electric vehicles in urban mobility policies and in the
electricity grid, both as energy consumers and potential storage facilities.

2.4. Decarbonisation of the economy

An ambitious climate policy is an integral
part of our Energy Union. The EU's climate policy is based on an EU-wide carbon
market (the EU Emissions Trading System), ambitious but fair national
green-house gas reduction targets for the sectors outside the Emissions Trading
System and an energy policy to make the European Union the number one in
renewable energy.

An ambitious EU Climate policy

The agreement on the 2030 climate and
energy framework has defined the EU commitment of an at least 40% domestic
reduction in greenhouse gas emissions compared to 1990. This makes an ambitious
contribution to the international climate negotiations with a view to achieving
a binding climate agreement in 2015. This contribution is spelled out in the
communication on the Road to Paris, presented at the same time as this Energy
Union Strategic Framework. The Commission, together with the Member States,
will engage with other major economies to convince them to join Europe's
ambition. It will do this through an active European climate diplomacy that
makes full use of trade and development instruments.

The cornerstone of Europe’s climate policy
is a well-functioning EU Emissions Trading System. As a result of the Market
Stability Reserve and the measures needed to meet the increased ambition
decided in the 2030 framework, the EU Emissions Trading System will deliver a
meaningful price on carbon emissions and stimulate cost-efficient green-house
gas emission reductions. The European Commission wants the EU Emissions Trading
System to fully play its role as a technology neutral, cost-effective and
EU-wide driver for low-carbon investments. Through its price formation at EU
level it reinforces the functioning of the internal energy market and
stimulates the uptake of renewables and other low-carbon and energy-efficient
technologies. Policies to prevent carbon leakage should reflect the degree of efforts
undertaken in other major economies.

For the sectors not included into the EU
Emissions Trading System, national targets still need to be set and the land
and forestry sector will be incorporated into the EU 2030 framework, ensuring
that also these sectors have the right incentives to mitigate GHG emissions and
contribute to the fight against climate changes.

Becoming the number one in renewables

The European Union is committed to becoming
the world leader in renewable energy, the global hub for developing the next
generation of technically advanced and competitive renewable energies. The EU
has also set an EU target of at least 27% for the share of renewable energy
consumed in the EU in 2030.

The EU is already on track to meet its 2020
target of 20% renewable energy in its energy mix, costs for new wind and
photo-voltaic capacity have reduced significantly due in large part to the EU's
commitment in this area, and reform of support schemes to further drive down
costs is well under way. But to achieve the 27% target, new challenges must be
faced.

To integrate renewable production
progressively and efficiently into a market that promotes competitive
renewables and drives innovation, energy markets and grids have to be fit for
renewables.[25]
Existing legislation and new market rules need to be fully implemented,
enabling the roll-out of new technologies smart grids and demand response for
an efficient energy transition.

In line with the Environmental and Energy
Aid Guidelines, renewable production needs to be supported through market-based
schemes that address market failures, ensure cost-effectiveness and avoid
overcompensation or distortion. Low-cost financing for capital intensive
renewables depends on having a stable investment framework that reduces
regulatory risk. This is necessary to ensure investor confidence and to attract
investments from international funds, large scale project promoters and
cooperatives and households in a market-based framework that keeps capital
costs down. The Commission will facilitate cooperation[26] and convergence of
national support schemes leading to more cross border opening through in-depth
discussions with Member States on the respective Commission Guidance[27] and the Environmental
and Energy Aid Guidelines.

Investment decisions in renewable
electricity have to take into account the physical realities of resource
availability and of the grid; public acceptance; consumption location and
administrative barriers. Also, the development of new infrastructure,
especially interconnections, needs to lower the cost of integrating renewable
electricity into the internal energy market.

The EU needs to invest in advanced,
sustainable alternative fuels, including biofuel production processes, and in
the bio-economy more generally. This allows us to retain technological and
industrial leadership and to meet climate change objectives. The EU will also
need to take into account the impact of bioenergy on the environment, land-use
and food production. The EU Investment Plan, as well as other EU financing
sources, could help to ensure the necessary financing.

2.5. An Energy Union for Research,
Innovation and Competitiveness

A new strategy for Research and Innovation
(R&I) must be at the very heart of the Energy Union. If Europe’s Energy Union
is to be the world number one in renewable energies, it must lead on the next
generation of renewable technologies as well as to storage solutions.

Equally, putting the EU at the forefront of
smart grid and smart home technology, clean transport, as well as clean fossil
fuel and the world's safest nuclear generation, is central to the aim of
turning the Energy Union into a motor for growth, jobs and competitiveness.

Although important progress has been made
in improving the effectiveness of Europe's research programmes, much more can
be done. We are still a long way from fully coordinated and focussed research,
effectively combining EU and Member State programmes around common goals and
deliverables. If we are to achieve our aims, we must get the maximum possible
results from every Euro invested across the whole EU. This means taking an
integrated approach to create synergies; working together to coordinate efforts
and deliver results; ensuring more effective links between research and
industry and thereby bringing new technologies to the market in the EU.

To achieve this, the new European energy
R&I approach[28]
should accelerate energy system transformation. This should build on Horizon
2020 and involve all Member States, stakeholders and the Commission.

Actions should be grouped around the
following four core priorities, to which Member States and the Commission would
commit:

–
Being the world leader in developing the next
generation of renewable energy technologies, including environment-friendly production and use of biomass and
biofuels, together with energy storage;

–
Facilitating the participation of consumers in
the energy transition through smart grids, smart home appliances, smart cities,
and home automation systems;

–
Efficient energy systems, and harnessing
technology to make the building stock energy neutral,
and

–
More sustainable transport systems that develop
and deploy at large scale innovative technologies and services to increase
energy efficiency and reduce greenhouse gas emissions.

On top of these four common priorities,
there are additional research priorities which merit a much greater level of
collaboration between the Commission and those Member States who want to use
these technologies:

–
A forward-looking approach to carbon capture and
storage (CCS) and carbon capture and use (CCU) for the power and industrial
sectors, which will be critical to
reaching the 2050 climate objectives in a cost-effective way. This will require
an enabling policy framework, including a reform of the
Emissions Trading System and the new Innovation Fund, to increase business and
investor clarity, which is needed to further develop this technology.

–
Nuclear energy presently
produces nearly 30% of the EU's electricity.[29] The EU must ensure that Member
States use the highest standards of safety, security, waste management and
non-proliferation. The EU should also ensure that it maintains technological
leadership in the nuclear domain, including through ITER[30],
so as not to increase energy and technology dependence.

An innovation-driven transition to a low
carbon economy offers great opportunities for growth and jobs. New business
sectors, new business models and new job profiles will emerge. Technological
leadership must be followed by the development of industrial production
capabilities or technology supply chains across Europe. This requires bringing
together research, industry, the financing sector and public authorities. An
efficient industrial strategy along these lines will enable the EU industry to
benefit from the first-mover advantage, both domestically and within
international technology markets, with the resulting positive effects on
competitiveness and job creation.

The Commission will explore how public
procurement can exploit its potential to act as a catalyst for industrial and
business innovation, and green growth both within the EU and beyond its
borders. It will make full use of EU trade policy to improve access to foreign
markets for Energy Union related technologies and services as well as to protect
the EU market from unfair trade practices, and support other countries in their
efforts to establish modern and sustainable energy systems. The Commission will
work with Member States and regions to ensure synergies between the different
EU funds and to exploit the full potential of Cohesion Policy funding for
innovation.

Change also means that some sectors,
business models or job profiles will have to adjust. Vocational and other
training paths for new or adapted job profiles have to be established, corresponding
to the new business needs and providing people with solid professional skills.
An energy transition that is just and fair will therefore require re-training
or up-skilling of employees in certain sectors and, where needed, social
measures at the appropriate level. The first-hand knowledge and experience of
the social partners is crucial in this regard. The Commission will inform the
social partners and invite them to include the energy transition in their
social dialogue at European level.

3. Energy Union Governance

The Energy Union also needs an integrated governance and
monitoring process, to make sure that energy-related actions at European,
regional, national and local level all contribute to the Energy Union's
objectives. The governance process should serve the following purposes:

-
bring together energy and climate actions as well as actions
in other relevant policy areas, leading to more and longer-term policy
coherence. This also provides long term certainty and guidance for investors;

-
secure implementation of the internal energy market and the
delivery of the 2030 energy and climate framework, notably the implementation
of the agreed 2030 targets on renewables, energy efficiency, non-Emissions
Trading System and interconnections;

-
involve
an energy dialogue with stakeholders to inform policy-making and support active
engagement in managing the energy transition;

-
deepen
the
cooperation between Member States, including at the regional level, and with
the Commission;

-
improve
the data, analysis and intelligence needed to underpin the Energy Union by
pooling the relevant knowledge and making it easily accessible to all
stakeholders, and

-
annual
reporting to the European Parliament and the Council on the state of the Energy
Union in order to address the key issues and steer the policy debate.

The Commission will launch a dynamic governance process for
the European Energy Union. While there will be
clear links between this governance process and the European Semester, the two processes will be managed separately.

4. Delivering the Energy Union

Achieving the
Energy Union means delivering on the actions set out in this Strategy, which
are summarised in the fifteen points set out below. The attached roadmap shows
the initiatives to be developed as part of the Strategy, with a clear timetable
for adoption and implementation as well as respective responsibilities. The
Commission regards these as inter-linked and consistent with the scale of
ambition the EU needs to transform Europe's energy system.

Successful
implementation depends on the political commitment of all actors concerned,
including EU institutions, Member States, the European Investment Bank and
other stakeholders, including at regional and local level, in line with the
principles of subsidiarity, proportionality and better regulation.

The EU must be
able to react to unexpected events, seize new opportunities and anticipate and
adapt to future trends. Whenever necessary, the Commission will use its right
of initiative to set out an appropriate response to events.

The Commission
invites the European Parliament and Council to endorse this strategy to deliver
the Energy Union and to actively engage in its implementation, in close
cooperation with all relevant stakeholders.

*

* *

The Energy Union in fifteen action points 1. Full implementation and strict enforcement of existing energy and related legislation is the first priority to establish the Energy Union. Ø The Commission will use all instruments to ensure that Member States fully implement energy legislation, in particular the 3rd Internal Energy Market Package, and it will strictly enforce the Treaty's competition rules. 2. The EU needs to diversify its supply of gas and make it more resilient to supply disruptions. Ø The Commission will propose a resilience and diversification package for gas in 2015-2016 by revising the existing security of gas supply Regulation. Ø The Commission will prepare a comprehensive strategy for liquid natural gas (LNG) and its storage, and Ø The Commission will work with Member States to develop access to alternative suppliers, including from the Southern Gas Corridor route, the Mediterranean and Algeria, in order to decrease existing dependencies on individual suppliers. 3. Intergovernmental agreements should comply fully with EU legislation and be more transparent. Ø The Commission will propose a revision of the Decision on Intergovernmental Agreements in 2016 to ensure compatibility with EU legislation before agreements are negotiated, involve the Commission in such negotiations, develop standard contract clauses covering EU rules and make commercial gas supply contracts more transparent. 4. The right infrastructure is a precondition for completing the energy market, integrating renewables and security of supply. Ø The Commission will support the implementation of major infrastructure projects, particularly the Projects of Common Interest, through the available financial means, e.g. the Connecting Europe Facility, the European Structural and Investment Funds and the future European Fund for Strategic Investments to leverage the necessary private and public funding. Ø The Commission will bring together information on EU-funded infrastructure projects to bring more coherence and to maximise their impact. Ø The Commission will create a dedicated Energy Infrastructure Forum to discuss progress on major infrastructure projects with Member States, regional cooperation groups and EU institutions. It will meet for the first time in late 2015. 5. Creating a seamless internal energy market that benefits citizens, ensuring security of supply, integrating renewables in the market and remedying the currently uncoordinated development of capacity mechanisms in Member States call for a review of the current market design. Ø The Commission will propose legislation on security of supply for electricity in 2016. Ø The Commission will propose a new European electricity market design in 2015, which will be followed by legislative proposals in 2016. 6. The regulatory framework set-up by the 3rd Internal Energy Market Package has to be further developed to deliver a seamless internal energy market to citizens and companies. Ø The Commission will review the regulatory framework, in particular the functioning of ACER and the ENTSOs, in 2015-2016 and will propose appropriate actions to reinforce the European regulatory framework. 7. Regional approaches to market integration are an important part of the move towards a fully integrated EU-wide energy market. Ø The Commission will develop guidance on regional cooperation and engage actively in regional cooperation bodies with Member States and stakeholders. 8. Greater transparency on energy costs and prices as well as on the level of public support will enhance market integration and identify actions that distort the internal market. Ø The Commission will produce biennial reports on energy prices, analyse in depth the role of taxes, levies and subsidies and seek the phasing out of regulated prices below cost. Ø At the national and local levels, action should be taken to protect vulnerable consumers through social policies. 9. The EU has set itself the target of reaching at least 27% energy savings by 2030. Ø In 2015 and 2016, the Commission will review all relevant energy efficiency legislation and will propose revisions, where needed, to underpin the 2030 target. Ø Member States and regions should make more use of European funds for renovation of housing. 10. Buildings have huge potential for energy efficiency gains. Retrofitting existing buildings to make them energy efficient and making full use of sustainable space heating and cooling will reduce the EU's energy import bills, reinforce energy security and cut energy costs for households and businesses. Ø The Commission will develop a ‘Smart Financing for Smart Buildings’-initiative to make existing buildings more energy-efficient, facilitating access to existing funding instruments. Ø The Commission will propose a strategy to facilitate investment in heating and cooling. 11. The EU needs to speed up energy efficiency and decarbonisation in the transport sector, its progressive switch to alternative fuels and the integration of the energy and transport systems. Ø The Commission will propose a comprehensive road transport package promoting more efficient pricing of infrastructure, the roll-out of intelligent transport solutions and enhancing energy efficiency. Ø The Commission will take further action to create the right market conditions for an increased deployment of alternative fuels and to further promote procurement of clean vehicles. This will be delivered through a mix of national, regional and local measures, supported by the EU. 12. The EU agreed a climate and energy framework for 2030 at the October European Council. This now needs to be implemented. The EU will provide an ambitious contribution to the international climate negotiations. Ø The Commission will propose legislation to achieve the greenhouse gas reduction target agreed at the October 2014 European Council both in the Emissions Trading System and in the sectors outside the Emissions Trading System. 13. The EU has agreed the target of at least 27% at EU level for renewable energy by 2030. Ø The Commission will propose a new Renewable Energy Package in 2016-2017. This will include a new policy for sustainable biomass and biofuels as well as legislation to ensure that the 2030 EU target is met cost-effectively. 14. The EU needs to develop a forward-looking, energy and climate-related R&I strategy to maintain European technological leadership and expand export opportunities. Ø The Commission will propose a European energy R&I approach, comprising an upgraded Strategic Energy Technology Plan and a strategic transport R&I agenda, with a limited number of essential priorities and clear objectives, in 2015-2016. Ø The Commission will develop an initiative on global technology and innovation leadership on energy and climate to boost jobs and growth. 15. The EU will use all external policy instruments to ensure that a strong, united EU engages constructively with its partners and speaks with one voice on energy and climate. Ø The Commission, with the HR/VP, and the Member States will revitalise the EU's energy and climate diplomacy. Ø The Commission, with the HR/VP, will develop an active agenda to strengthen EU energy cooperation with third countries, including on renewable energy and energy efficiency. Ø The Commission will make full use of the EU's external trade policy to promote access to energy resources and to foreign markets for European energy technology and services.

[1] Communication "Energy
Efficiency and its contribution to energy security and the 2030 Framework for
climate and energy policy", COM(2014)520.

[2] European Energy Security Strategy,
COM (2014) 330.

[3] Commission estimates. The IEA
estimates that EUR 1.3 trillion are needed by 2025 in generation, transport and
distribution.

[4] Calculations of DG Energy based on
Platts market reports and IEA data for first half of 2014.

[10] Directive 2009/119/EC of 14 September
2009 imposing an obligation on Member States to maintain minimum stocks of
crude oil and/or petroleum products.

[11] COM(2014) 654 final.

[12] See the Communication "Making the
most of public interventions", C(2013)7243.

[13] Initiatives such as "trade in
green goods" will help promote products that help reduce CO2 emissions,
benefit the environment and create EU jobs and growth.

[14] Decision No 994/2012/EU establishing
an information exchange mechanism with regard to intergovernmental agreements
between Member States and third countries in the field of energy.

[15] This update will include strategic
Projects of Energy Community Interest (PECIs) that are important to enhance the
Energy Union's security of supply, if they also comply with the criteria to
become PCIs.

[16] EU Investment Plan, COM(2014)903.

[17] Examples for
this could be decisions relating to new infrastructure affecting more than two Member States, on exemptions from physical reverse flows in line
with the Security of Gas Supply Regulation, cross-border cost allocations under
the TEN-E Regulation or
similar.

[18] See the Communication "Making the
most of public interventions", C(2013)7243.

[24] Directive 2014/94/EU of the European
Parliament and of the Council of 22 October 2014 on the deployment of
alternative fuels infrastructure.

[25] Making markets fit for renewables
means short term markets need to develop into deep, liquid and real time
functioning. Existing power grids designed and often managed for conventional
power production in a national scope are suboptimal for a future where supply
from renewable sources will become ever more important and where balancing is
needed to compensate for their inherent variability.

[26] Several Member States are looking into
using cooperation mechanisms from the Renewable Energy Directive to meet their
national targets cost-efficiently. The Commission has been supporting this
process by helping Member States to find solutions for technical and financial
issues related to these cross-border mechanisms.

[27] European Commission guidance for the
design of renewables support schemes, SWD(2013)439; Guidance on the use of
renewable energy cooperation mechanism, SWD(2013)440.

[28] This should comprise an updated
Strategic Energy Technology Plan and a strategic transport R&I agenda.

Communication on the progress towards the completion of the list of the most vital energy infrastructures and on the necessary measures to reach the 15% electricity interconnection target for 2030 || Commission || 2016 || X || X || || ||

Legislative proposals on the Effort-Sharing Decision and the inclusion of Land Use, Land Use Change and Forestry (LULUCF) into the 2030 Climate and Energy Framework || Commission || 2016 || || || || X ||

Review of the Decision on information exchange mechanism with regard to intergovernmental agreements between Member States and third countries in the field of energy || Commission HR/VP || 2016 || X || X || || ||